After Europe's Finished It's Our Turn

I wanted to take a moment to address the Fed's new program of buying the long-end of the Treasury curve and its implications.

First off, because of the August collapse in stocks, long-term Treasuries have already rallied quite sharply. Indeed, the 30-year Treasury just hit a new ALL TIME high the afternoon after the Fed announced its new program.

That’s correct, the 30-Year Treasury is now trading even HIGHER than it was at the absolute nadir of the 2008/2009 Crash:

The fundamental picture here couldn’t be worse. The US is running a deficit equal to 10% of GDP. The US’s debt to GDP level is north of 100%. And the 30-Year Treasury is at an all-time high.

To be blunt: for the Fed to be buying Treasuries at this level is akin to buying Tech Stocks in 2000 or Housing stocks in 2007. Treasuries are in a bubble. And this bubble will end as all bubbles do: with a bang.

As noted in previous issues articles, interest rates are already at or near all time lows. So why would the Fed choose to buy longer-term Treasuries at all?

The answer lies in new US debt issuance. While everyone focuses on Europe’s mess, the US has once again raised its debt limit in September (the huge debt-ceiling debacle of August was just smoke and mirrors). With deficits and debt-to-GDP ratios on par with Greece, the US will be following Europe in the global debt implosion.

The Fed’s decision to buy $400 billion of longer-term US Treasuries in this environment is essentially the Fed announcing that it will be covering a significant portion of new debt issuance going forward as a means of putting off the inevitable US debt default. At most the Fed has bought 2-3 months of time for the US. I fully believe that before the end of this year, the bond market will shift its sights away from Europe to the US. At that time, the US debt bubble will burst resulting in systemic failure.

Indeed, last week we got a confirmed SELL on my proprietary Crash indicator. This is the SAME indicator that registered before the 1987 Crash, the Tech Crash, and the 2008 collapse.

It's just triggered again... which means that last week’s sell off is JUST the beginning of what's coming.

Yes, the GREAT COLLAPSE has begun. The markets will be going to new lows (below the March 2009 lows) in the coming months.

We're also going to be seeing major banks go under, market crashes, food shortages, government shutdowns, and SYSTEMIC FAILURE.

Yes, I believe that before this mess ends, the financial system as a whole will have collapsed. What's coming is going to make 2008 look like a joke.

If you have yet to prepare yourself for what’s coming, my Surviving a Crisis Four Times Worse Than 2008 report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.

Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).

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"...The Fed’s decision to buy $400 billion of longer-term US Treasuries in this environment is essentially the Fed announcing that it will be covering a significant portion of new debt issuance going forward as a means of putting off the inevitable US debt default. At most the Fed has bought 2-3 months of time for the US. I fully believe that before the end of this year, the bond market will shift its sights away from Europe to the US. At that time, the US debt bubble will burst resulting in systemic failure...."

The FED is selling an equal amount of short term T-bills. Net /net, this has not effect in terms of buying time. Selling t-bills soaks up liquidity, buying t-bonds releases liquidity back to the market. The Fed's B/S will increase in duration somewhat - but not excessively - leaving them more exposed to movements up in interest rates (moot point if the debt is held to maturity in terms of notional amounts).

The other underlying assumption in the author's article is that Treasury will be issuing longer term instruments. If not, then the FED buying of T-bonds will be forcing the market into shorter durations. If they don't want those pithy returns, it looks like a repeat of 2002/2003 where money managers will be forced into riskier instruments (MBS, CDO, CDO-squared, anyone) as they chase yield.

None of this is of any benefit to the economy, nor does it address any of the issues facing the US (needed spending cuts, tax raises, savings encouragement).

What's a proprietary crash meter? Is it a physical instrument that you can hold? Does it beep when a crash is coming? Did you have to get it patented and trade marked? I'm sorry. I like reading your stuff but I couldn't resist.

Haven't you seen it? It looks sort of like the machine in Dr. Frankenstein's lab: Jacobs Ladders arcing and cackling, venting steam, lots of dials and gauges and levers. Very impressive and sciency. When the klaxon sounds and the rotating red light starts spinning, watch out!

It’s time to make one thing clear once and for all: the financial institutions at the heart of our economic system are finished, broke, bankrupt. Since 2008, they have been kept alive only by gigantic infusions of our, the public's, money. We have been, and still are, told this is only temporary, and that the money will help restore them to health and then be repaid, but temporary has been 3 years and change now and there’s no restored health anywhere in sight.

The opposite is true: Obama launches another -even more desperate- half-trillion dollar jobs plan, and Europe is devising another multi-trillion dollar plan aimed solely at keeping banks from going belly-up, because these banks have lost anywhere between 50% and 90% of their market capitalization in the past few years, despite the multi-trillion capital infusions(!), and are still loaded to the hilt with investments, in sovereign bonds, in each other, in derivatives, that are so toxic they could blow them up at any moment.

If this were not true, if there were any possibility left that the banks at the heart of the system could indeed be saved and restored back to health with public funds, their assets would all long have been marked to market, and market confidence would thus be fully restored. The fact that mark-to-market is still religiously shunned 3 years after Lehman should tell you all you need to know about what's real and what's not.

There is no hope, no indication, and no possibility, that pouring even more taxpayer and future taxpayer capital into the leaks would stop the floodwater from entering. The leaks are both too big, and too numerous. If a possibility existed to seal the leaks with public funds, it would have been implemented by now, everyone -from banks to governments- would have taken their share of losses and we would now be talking about preventing the next crisis, not about how to deal with the present one, which has only gotten deeper as we've gone along.

The meme that comes from our "leaders" is that by saving the banks -and that way only-, we will be able to save ourselves. The reality is, however, that the banks are being saved at our expense, and we get poorer fast because of it.

And it's worse that that: the banks are beyond salvation, which means there can and will be no end to the constant flood of money from us, from the public coffers, towards the financial system, as long as present leadership, and their meme of saving banks to save ourselves, remain in control.

The interests of the banking industry are not our interests; the two are, in the present instance, incompatible. There are situations possible where this is not the case, but our present situation is not one of them. Indeed, our interests are today diametrically opposed to those of the banking system because that system is drawing its last breath, choking on an overkill of debt, and trying hard, aided and abetted by our political leadership, to drag us down with it.

If we are to have a feasible shot at building a future that's humane, we must leave those banks to die that have no chance of survival, and we must rid ourselves of those "leaders" amongst us who refuse to build that future with and for us and who persist in taking our money only to hand it to a deeply bankrupt industry, which can subsequently use it to finance their election campaigns.

It's one thing to ask people to make sacrifices in order to save their health care and education systems. It's quite another to force, instead of ask, them to make sacrifices in order to save their banking system. And people will only take this lying down to an extent.

They've already been taking it upside down, bent over, and sideways to a very wide extent. The majority just don't know it. Nothing momentum-shifting of a cataclysmic diversionary nature will happen to the present failling economic and governing structure until food and fuel become common-man essentially unobtainable. That's when things will change involuntarily.

The People are presently drugged with the most powerful combination drug in existence. Denial and Hope. The media mixes it, the pols inject it, The People swoon in delirium ecstasy.

I think the 30 year might have more room to run. It's still a detested asset class and deflation is the oncoming danger. Furthermore plenty can still happen that would cause Treasuries in general to advance such as protectionism or a hard-landing in China. Also, why doesn't anyone mention Japan?

Those dudes are even worse off than we are and bond bears there have waited to death. I think Japan would go first before US. Just my two cents.

Yes from all the experts i keep hearing the same thing, Europe will implode FIRST

...maybe they'll blow-up at the same time

...take a look at international banking/finance over CENTURIES. The inter-connected banking web of transfering excess wealth from one nation to growing countries of another and seeking higher returns and profits (for the bankers bonus pool). When countries like America have blown up in the past it has caused after-shocks in Europe who lent them the money. One nation defaulting triggers another (the loaners country) to as well.

You think Europe will collapse without having an immediate impact on America, or even across in Japan and China? ...i don't think so.

If US Banks fear their European exposures have gone sour they'll also be selling assets (fire sales) across the globe to cover. Similarly all the Euro bwankers who are about to sustain huge losses on their Euro-Govt loans to assist with the wealth destroying suicide-socialsm political strategic direction of the EU block will be looking to sell assets in homeland Europe and across in America and Asia to cover. This huge asset sale is going to tumble prices as buyers in this economic enviroment are going to be hard to find

With the massive downdraft in momentum stocks today there has been speculation of a hedge fund blow-up. Those rumors now appear to be centered on John Thaler's JAT Capital. While we cannot verity if these rumors are true, the fund owns many of today's worst performers.

'To be blunt, for the FED to be buying Treasuries here is akin to buying tech stocks in 2000 or housing stocks in 2007'

Nah I dont think thats what we're seeing, the FED is actually betting that the 1 world govt, 1 world currency, New World Order will be a success and their 30y Treasuries will be worth something.

I dont think its a paying bet myself, but its all the FED's got now.

But I do agree the crash has started. Shows like todays close are 'training days', one day soon the big plunge everyone is certain will be quickly recovered within minutes wont be, and will just keep getting worse as panicked people mash the 'sell' button to no avail in a dead empty bidless market.

The sheeple, well, theyre sheeple always have been and always will be.

But the 2% or 3% who have gotten this all along and in no way will go along with it are the Joker theyre pissing their pants over...no bankers army can deal with 4 million or so pretty well prepared and armed guerillas.

I think it's interesting that he talks of inevitable default, when it's obvious it will never happen as he states. Why? Because it already has happened, and everything being done now (and in the future) will be all about redefining what a default is/was.

It seems that analysts like these are stuck in a box labeled "market economy" while reality has morphed into a world of "political economy." As long as the Fed can issues checks/notes accepted by others for payment, they can (and will) buy every single bond in existence. The idea that the Fed will blow up once rates rise, like I said, is a market perspective, which hasn't been valid in interest rate land since Greenspin fired up the PPT. Their balance sheet, as well as their underlying "assets" are just pieces of paper with lots of fancy letters and numbers, stating that somebody owes them something. What that something is, is very open to interpretation.

It's getting to be the time when thinkers (not intellectuals, God forbid) put aside the phony partisanship indoctrination and realize that the Creature from Jekyl Island is the cause of all that ails us; whether wars, the economy, or the abrogation of the Bill of Rights and yes, the Constitution. Strange bedfellows these days; conservatives (a la Ron Paul), and uber leftists all coming to the same conclusion; the banksters must be hung from the nearest lamppost; the FED abolished, strict limits on campaign funding and term limits instituted.

After the above is achieved, then we can debate the relative merits of big vs little government.

It's getting to be the time when thinkers (not intellectuals, God forbid) put aside the phony partisanship indoctrination and realize that the Creature from Jekyl Island is the cause of all that ails us; whether wars, the economy, or the abrogation of the Bill of Rights and yes, the Constitution. Strange bedfellows these days; conservatives (a la Ron Paul), and uber leftists all coming to the same conclusion; the banksters must be hung from the nearest lamppost; the FED abolished, strict limits on campaign funding and term limits instituted.

After the above is achieved, then we can debate the relative merits of big vs little government.

ZeroHedge was so much more entertaining when we had all the rabid and hysterical anti-gold trolls, and Leo Quislingasskiss, to regularly beat up on. Even RobotTraitor's pro-paper trolling is but a mere shadow of its former vehemence and ubiquity.

Methman and RedneckRepugnicant, where are you?For that matter, where is tmosley to beat them all down into the dirt?